Dee Positano is staying with us. I am pleased. I like her even though she is a banker. Some bankers can be nice.
Would I like her more if she weren’t a banker? I can’t say, and neither can Grok. Sherlock Holmes, Grok’s predecessor, would have treated it not as insoluble but as not worth solving. He would not have said the question was a load of crap – he was much too respectable to use such language – but I can imagine him saying “Alimentary, my dear Watson.”
Dee, also called “Deposit” (but only behind her back), has joined us on our verandah. God is in his heaven, as the saying goes. Or her heaven, if that’s where your fancy takes you. Mine, I should tell you, does not.
Yet, despite everything being so lovely, my mind has not ceased to be unsettled.
“I have been thinking,” I say. Noah looks incredulous, but I ignore him. “I have been thinking about banking even though, dear Dee, I know you would prefer me not to. I have learnt that the money I put into my account in my bank is not mine, but the bank’s. The bank becomes the owner of the money I deposit, and my only right, it seems, is to demand its repayment on due date. I become a creditor for the money, and the bank is my debtor.
“Frankly, I struggle to believe this. In their blurbs, the bank treats the money as mine and, goodness knows, it happily levies charges for managing my money. I see the money as mine, and I simply cannot shake off this feeling. Yet you are telling me it’s theirs.”
Dee makes sympathetic noises. “You feel that if the situation looks like a duck, walks like a duck, and quacks like a duck, it must be a duck. Subjectively, you feel one thing, but objectively the truth is otherwise. You are suffering a kind of cognitive dissonance, not so?”
“A mallardy more like it,” growls Noah. This is his effort at humour, but I can easily top it. I am good at this stuff.
“You’re ducking the issue,” I say.
My witticism is met with groans. I’m not that good, it seems.
Noah, donning his lawyerly face, brings matters down to earth. “Seriously, you’re right. An issue does exist, and it’s not just in your mind. If the depositor still owned the money, he would get it back in full should the bank collapse. Since he doesn’t, he can only file a claim, in competition with other creditors, for a share of the scraps on winding up. You know, ten cents in the rand, or whatever.”
“Banks don’t collapse,” I say, naively. I can be very gullible. A friend of mine once said that “gullible” is not a word in the dictionary. When I contradicted him, he only laughed, and I eventually realised I’d been gulled. The process of comprehension took rather longer than I would have wished. Time can ravage the mind.
“We have our moments”
“Banks do collapse. They do so more often than you think. In America, they fail almost as often as they are robbed. Even here, we have our moments – VBS Bank is a classic example. How much went down the drain there, Dee?”
“About two billion rand,” she replies. “I must say, I have to accept that banking has its risks. Banks take your money and lend it out to others who, by depositing it in turn, provide the basis for a repetition of the process. The practice of recycling can be limitless and, in the process, risk is undoubtedly being piled on risk. But this process, which we still call fractional reserve banking, has stood the test of time.”
“Huh! ‘Fractional reserve banking’ because you only get back the fraction of your money reserved for you!”
“No. It’s a reference to the fact that banks were once required to keep a fraction of deposits in reserve. The system, supposedly designed to prevent a run on withdrawals, has largely been replaced by an insurance scheme that underwrites losses caused by bank defaults. A depositor is automatically covered for losses of up to R100,000 in total deposits per bank, and all banks must pay levies to the scheme.”
“Some comfort, but not much. You’re still describing a card house that, owing to risk, can collapse at any time.” I exclaim, a little shocked. Unsettled I might have been, now I am become highly discombobulated.
“Yes, I suppose I am, but the banks have, over the years, discovered ways to limit the risk. They are careful to lend money, as they say, to people who don’t need it. They have safeguards against fraud and implement rigorous mechanisms of scrutiny and control. On top of this, the State represented by the SA Reserve Bank monitors their dealings and seeks to ensure a suitable level of financial probity.”
“Good. So the VBS debacle was what? A mistake, an oversight, a procedural irregularity, an exception?” I am in Perry Mason mode.
“Mmm,” Dee mutters, all but lost for an answer. “Things do go wrong, to be sure, but we all believe the system remains a good one. Here’s a text I learnt by heart in preparation for a presentation to clients: ‘By allowing the same money to circulate multiple times, fractional reserve banking helps expand the money supply, encourage spending, and support economic growth’. The people at the conference found these sweet words very encouraging.”
Why, I wonder.
“Well, the only money supply I am worried about right now is my own. How do I preserve my money, which goodness knows is not that much, from the wolves that want to consume it?”
Between agitato and agitans
Dee gives us a careful explanation for which I am most grateful. I summarise it for the edification of those who, like me, find themselves in a place between agitato and agitans.
- Select your bank carefully. If you cannot stand the carping of the big four, choose one of the more established ones at least.
- If you have thousands of rand you simply must keep in cash, spread your holdings in R100k gobbets between banks.
- Opt for investments – shares, etc – that are registered and beneficially held in your name. Make sure the bank is simply an agent to invest, and that you are not lending it money to invest in its name with you as beneficiary.
- Consider alternative investments – land, gold ETFs, and so on
- Get a good financial adviser. In good times, his help is really good, in bad times, you will need him real bad!
Oh, and don’t rely on advice you get through me. I know nothing. I should emulate the practice of Brer Rabbit, who just “lay low and said nuffin”. But, hey, I do so like to chat.
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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